Hyundai Profit Surpasses Estimates on China, i10 Minicar

A new Hyundai Elantra vehicle rolls off the assembly line at the company's plant in Beijing. Photographer: Doug Kanter/Bloomberg

Oct. 25 (Bloomberg) -- Hyundai Motor Co., South Korea’s
largest carmaker, reported profit that exceeded analysts’
estimates as it benefited from anti-Japan protests in China and
the i10 minicar helped the company buck the slump in Europe.

Third-quarter net income climbed 13 percent to 2.17
trillion won ($2 billion), from 1.92 trillion won a year
earlier, the Seoul-based company said today. That beat the 2.05
trillion-won average of 27 analysts’ estimates compiled by
Bloomberg.

The carmaker said it will probably beat its full-year sales
forecast as deliveries climb 8.2 percent in the fourth quarter,
led by demand in China. Hyundai benefited last month from
flaring anti-Japan protests in China over a territorial dispute,
which helped cushion the fallout from a seven-week labor strike
that cost the carmaker an estimated record 1.7 trillion won in
lost production.

“There were concerns over Hyundai’s quarterly earnings up
until the last moment as production was disrupted by strikes and
holidays at overseas plants,” Shin Chung Kwan, an analyst at KB
Investment & Securities Co. in Seoul, said by phone. “The
company will have no trouble making up for the loss through
extra work and shifts at plants this quarter and will meet its
annual target.”

Hyundai rose 3.9 percent, the biggest gain since Sept. 14,
to 226,500 won at the close in Seoul trading. The stock was the
second-biggest contributor to the benchmark Kospi index’s 0.6
percent climb.

Labor Strikes

Hyundai on Sept. 4 agreed to raise compensation, on
average, by 27.3 million won per person and end overnight
shifts, according to the union. That ended Hyundai’s first
strikes since 2008, which caused 82,088 vehicles in lost output,
according to company estimates.

The stoppages, which began mid-July, led third-quarter
exports from South Korea, home to 46 percent of Hyundai’s
production capacity, to fall 14 percent, according to the
company’s website. Sales at home shrank 8.3 percent.

While Hyundai has periodically faced disruptions in the
past four years because of labor disputes, none were legally
sanctioned and they rarely lasted beyond several hours. The last
formal strike occurred in 2008, when a 12-day walkout cost the
company an estimated 691 billion won, according to Hyundai.

Beating Target

Hyundai is on its way to exceeding its sales target this
year as deliveries reach 1.2 million units during the fourth
quarter, Chief Financial Officer Lee Won Hee said today during a
conference call. The company had forecast in January that global
deliveries would rise 5.7 percent to 4.29 million vehicles in
2012, including a 15 percent increase in Europe and a 6.8
percent gain in China.

The global automobile market will probably increase 3.6
percent next year as the U.S. grows 4.1 percent and India 8
percent, Lee said. European demand will probably fall 1.7
percent to 13.8 million units next year, he said.

Hyundai and affiliate Kia Motors Corp., both headed by
Chairman Chung Mong Koo, said earlier this month that combined
sales in China will probably exceed their target of 1.25 million
units after September deliveries climbed to a record.

China sales for Hyundai will probably be between 830,000 to
840,000 units this year, versus the company’s original target of
790,000, as the company benefits from the drop in demand for
Japanese brands in the country, Lee said. The company sold
739,800 vehicles in China last year.

Torching Dealerships

Consumers in China avoided buying Japanese-branded vehicles
after rioters torched dealerships and smashed cars, violence
triggered after Japan’s government last month bought a group of
islands claimed by both countries. Sales of Japanese brands
tumbled 41 percent in September in the world’s biggest car
market, the state-backed China Association of Automobile
Manufacturers said Oct. 10.

Hyundai will start producing a mid-size sedan model --
bigger than the Elantra and smaller than the Sonata sedan -- in
its new plant in China this year, along with the Elantra Yuedong
and the Santa Fe sport utility vehicle, Lee said.

In the U.S., the company’s second biggest market, third-quarter sales at Hyundai rose 7.7 percent, trailing the
industry’s 14 percent gain, as deliveries of the Sonata and
Santa Fe fell 3 percent and 29 percent, respectively. The Korean
carmaker ceded market share after Japanese carmakers, recovering
from last year’s earthquake and floods, released new competing
models.

Japanese Competition

Nissan, Japan’s second-biggest carmaker, boosted U.S. sales
of its Altima sedans 12 percent to 76,939 units last quarter,
according to Woodcliff Lake, New Jersey-based industry
researcher Autodata Corp. Yokohama, Japan-based Nissan began
sales of the 2013 Altima in July.

Honda Motor Co., Japan’s third-biggest carmaker, introduced
a redesigned version of its Accord sedan, the second-best
selling car in the U.S., in September. Sales of the model,
Honda’s biggest seller in the U.S., jumped 72 percent to 92,669
units last quarter.

Last month, Hyundai increased deliveries 15 percent in the
U.S., where sales expanded at the fastest rate since March 2008
as buyers took advantage of cheap financing for cars and trucks.

Automakers sold cars and light trucks at an annualized rate
of 14.94 million, after seasonal adjustments, the best pace
since March 2008. Banks now are charging auto buyers record-low
interest rates and carmakers have offered zero-percent financing
to attract customers.

In Europe, Hyundai gained market share as it benefited from
demand for the Tucson SUV and the i10 minicar, bucking a slump
in demand that’s leading auto sales in the region to their fifth
consecutive year of declines.

Hyundai’s operating profit in the quarter rose 3.1 percent
to 2.06 trillion won, versus the 2.09 trillion won average
estimate compiled by Bloomberg. That compares with the 19
percent decline reported yesterday by Volkswagen AG, Germany’s
largest automaker, as demand in Europe slumped.